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The European Securities and Markets Authority has today published an 800-page consultation on how it intends to turn the revised Markets in Financial Instruments Directive into practical and implementable standards.

But what if you've never heard of Mifid? Or didn't know that its second iteration was trundling through the EU's legislative process? Fear not, here is our bluffer's guide.

What does Mifid stand for?

The Markets in Financial Instruments Directive. It came into force on November 1, 2007 and is Europe’s main rulebook for trading and securities markets. It was designed not only to boost the EU's harmonisation efforts, but to promote competition and increase transparency for investors.

What has its impact been?

Mifid's biggest outcome was to allow alternative trading venues to challenge traditional stock exchanges. Whereas prior to Mifid, shares could only be traded on one exchange, the regulation allowed them to be traded across many alternative venues as well. This has resulted in the steady erosion of market share for major bourses such as the London Stock Exchange and Deutsche Börse, and the rise of alternative venues like Bats Chi-X Europe.

Why is it being revised?

While Mifid promoted competition and brought lower prices for investors, it needed to be updated in the wake of the financial crisis to address some of its unintended consequences, such as the increase in dark trading and the impact of market fragmentation. The revised version also extends the scope of Mifid to other asset classes. In October 2011, the European Commission tabled proposals to revise Mifid, dubbed Mifid II.

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Mifid II's scope is vast. It will go much further than its predecessor, which focused mainly on equities markets, and force transparency requirements upon other asset classes such as bonds and derivatives. It will also create a regulated trading environment for over-the-counter derivatives, fulfilling part of Europe’s efforts to meet the G20's 2009 commitment to reform those markets. Finally, it will help boost competition among clearing houses and limit high-frequency, commodity derivatives and dark pool trading.

What is most contentious?

Dark pools and open access. Mifid II includes two limits on trading stock in dark pools: 4% in a single dark pool and 8% across all dark pools. The EU is of the view that trading in dark pools harms price formation on public exchanges, or lit markets, and needs to be contained. Mifid II will also encourage competition in derivatives markets through "open access", allowing users to process trades through a clearing house of their choice irrespective of where they traded.

Who will it impact?

Asset managers, brokers, stock exchanges, alternative trading venues, data vendors and clearing houses will all be affected, as well as non-EU financial institutions that want to offer their services in Europe.

What stage is Mifid II at?

In April, the European Parliament and the Council of the European Union agreed to a final high-level, or level one, text that was first drafted by the European Commission in 2011. Now it is the job of the European Securities and Markets Authority to figure out how some of the rules will work in practice.

What exactly is Esma's role?

Written into the level one text are requests for "delegated acts" and "technical standards", which essentially are requests to form detailed rules. This work is handed to Esma so that legislators can focus on policy direction and objectives without entering into overly technical debates. For example, the level one text imposes limits on trading in dark pools, but just how these limits will be applied will be determined by Esma.

Why is today important?

Esma issued its first discussion paper today about it how intends to develop the technical standards. It will first consult with the industry via the discussion paper and will then use the feedback it receives for a further consultation. Esma is the body responsible for writing the final standards, which are then approved by the Parliament and Council.

When will Mifid II come into force?

The consultation started today runs until August 1 and Esma’s work thereafter is likely to be completed during 2015. It is expected that the rules will start being phased in from 2016, but some of the rules – such as those relating to open access to trading venues and clearing houses – will be subject to transition periods as long as three years.